The ACIT, Circle-4, Baroda V. Nitrochem India Pvt. Ltd., Baroda

ITA 3330/AHD/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85511 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 12-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Keywords: Depreciation; Additional depreciation; Non compliance
• Section: 142(1); 145; 2

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD 0 0 , 0 0 , BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI , ACCOUNTANT MEMBER ./ ITA NO . 3330 / AHD/ 201 0 [ [ / ASSESSMENT YEAR : 200 7 - 08 ACIT, CIRCLE - 4 , BARODA VS M/S. NITROCHEM INDIA PVT LTD 74, SAMPATRAO COLONY, PRODUCTIVITY ROAD, BARODA PAN : AAACN 7067 P CO NO. 15 /AHD/201 1 AY 200 7 - 0 8 ( IN ITA NO. 3330 /AHD/201 0 AY 200 7 - 0 8 ) M/S. NITROCHEM INDIA PVT LTD BARODA PAN : AAACN 7067 P VS ACIT, CIRCLE - 4, BARODA / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI B.L. YADAV, SR. DR. ASSESSEE(S) BY : SHRI MUKUND BAKSHI, AR / DATE OF HEARING : 12 / 01 /201 5 / DATE OF PRONOUNCEMENT: 16 /01/2015 / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AND THE CROSS - OBJECTION FILED BY THE ASSESSEE, BOTH AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - IV, AHMEDABAD DATED 24 .0 9 .201 0 FOR ASSESSMENT YEAR 200 7 - 0 8 . 2. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION MADE OF RS.32,57,060/ - ON ACCOUNT OF LOW YIELD OF FINISHED PRODUCT BY INVOKING THE ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 2 PROVISIONS OF SECTION 145(3) OF THE ACT, WITHOUT APPRE CIATING THE FACT THAT THE ASSESSEE HAD NOT FURNISHED ANY DETAILS / INFORMATION CALLED FOR BY THE ASSESSING OFFICER AND ALSO IN VIEW OF VARIOUS INFIRMITIES / DISCREPANCIES POINTED OUT BY THE ASSESSING OFFICER. (II) THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKING THE ADDITION ON ACCOUNT OF LOW YIELD OF FINISHED PRODUCT OF RS.32,57 ,060/ - . 3. THE ASSESSING OFFICER MADE THE ADDITION BY OBSERVING AS UNDER: - 4. ADDITION RS . 32 , 57 , 500/ - ON ACCOUNT OF LOW YIELD : DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS DETAILS WERE SOUGHT ALONG WITH THE DETAILS IN RESPECT OF THE RAW MATERIAL PURCHASES / CONSUMPTION, FINISHED GOODS AND WASTAGE VIDE NOTICE U/S 142(1) DATED 08.10.2009. THE ASSESSEE HAS FILED THE REPLY IN RESPONSE TO THE NOTICE, HOWEVER NOT THE FURNISHED THE FOLLOWING DETAILS: 1 )DETAILS OF RAW MATERIAL, FINISHED PRODUCT AND WASTAGE : CHEMICAL NAME RAW MATERIAL FINISHED PRODUCT WASTAGE 2 ) DETAILS OF CONSUMPTION OF RAW MATERIAL: MONTH CONSUMPTION OF RAW MATERIAL QUANTITY IN KG. QUANTITY OF WASTAGE IN KG. ONCE AGAIN A NOTICE U/S 142(1) OF THE IT ACT DATED 18.11.2009 WAS ISSUED TO THE ASSESSEE REQUIRING HIM TO FURNISH THE DETAILS AS STATED ABOVE. HOWEVER NO SUCH DETAILS WERE FILED. IN VIEW OF NON PRODUCTION OF DETAILS AND BASIC RECORDS SUCH A BILL, VOUCHER E TC. A NOTICE U/S 142(1) DATED 24.11.2009 WAS SERVED AND REQUIRING HIM TO PRODUCE THE BOOKS AND ACCOUNT, BILL, VOUCHER AND THE DETAILS AS REQUIRED IN THE EARLIER NOTICES. HOWEVER THE SITUATION REMAINS SAME AND ASSESSEE FAILS TO PRODUCE THE REQUIRE DETAILS O N STIPULATED DATE. SUBSEQUENT LY A SHOW CAUSE NOTICE U/S 271(1 )(B) OF THE IT ACT WAS ISSUED ON 02.12.2009 FOR NON COMPLIANCES MADE BY THE ASSESSEE FOR THE NOTICES ISSUED ON 08.10.2009 AND 18.11.2009. IN RESPONSE TO THIS SHOW CAUSE NOTICE ASSESSEE HAS FILED HIS REPLY ON 04.12.2009 AND STATED THAT 'CONSIDERABLE INFORMATION' HAS BEEN FILED AND ALSO CONTENDED THAT THE COMPANY AND THE C.A HAVE GOT OTHER ASSIGNMENT ALSO AND THEREFORE THE ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 3 SHOW CAUSE NOTICE MAY KINDLY BE WITHDRAWN. HOWEVER, THE ASSESSEE HAS NOT OFFE RED ANY COMMENT IN RESPECT OF THE NON FURNISHING OF INFORMATION AND NON PRODUCTION OF BASIC RECORDS WHICH WERE R EQUIRED IN THE NOTICE. IT IS IMPORTANT TO NOTE THAT THE FIRST NOTICE WAS ISSUED ON 08.10.2009 AND AFTER ELAPSES OF ALMOST TWO MONTHS THE DETAI LS AS REQUIRED IN THESE NOTICES WERE STILL TO BE FURNISHED .THIS IS PURELY A NON COMPLIANCES FROM THE ASSESSEE. ONCE AGAIN A NOTICE U/S 142(1) OF THE IT ACT WAS ISSUED TO THE ASSESSEE ON 10.12.2009 REQUIRING THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT O F CONSUMPTION OF THE RAW MATERIAL, PERCENTAGE OF CONCENTRATION AND WASTAGE. IN RESPONSE TO THIS NOTICE A GENERAL REPLY IS FILLED WHICH HAS NO BASIS AT ALL. THE RELEVANT OF THE SUBMISSION IS REPRODUCED AS UNDER: 'STATEMENT SHOWING PRODUCT WISE YIELD IS ATTA CHED HEREWITH. (AS PER ANNEXURE - II). IT MAY BE NOTICED THAT THE YIELD DURING THE CURRENT YEAR IS 0.35 AS COMPARED TO 0.39 IN THE LAST YEAR. THE REASON FOR DECREASE IN YIELD IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS USED 1728.39 MT OF SODIUM NITRATE SO LUTION AGAINST 59.47 MT DURING 2005 - 06 AND NIL DURING 2004 - 05. DUE TO THE USE OF SOLUTION, THE YIELD IS LESS SINCE THE SODIUM NITRATE CONTENT IN SOLUTION IS 32 TO 37% AS AGAINST SODA ASH / SODA ASH LUMPS WHICH IS 97 - 99%/ 75 - 80% RESPECTIVELY. ALSO DUE TO TH E SAME REASON, SINCE THE SOLUTION REQUIRES BOILING TO GET PURIFIED AND OBTAIN THE REQUIRED PERCENTAGE OF SODIUM NITRATE, FUEL IS USED LIKE GAS, FIREWOOD AND COAL. SO THIS IS ALSO THE REASON WHY THE FUEL CONSUMPTION HAS INCREASED FROM RS. 41.33 LAKHS LAST Y EAR TO RS. 54.35 LAKHS IN THIS YEAR.' AFTER THE CONSTANT FOLLOW UP OF THE ASSESSEE FINALLY ON 23.12.2009 FURNISHED THE CONCENTRATION OF THE RAW MATERIAL AND FINISHED GOODS AND PRODUCED THE EXCISE REGISTER . ON VERIFICATION OF THE EXCISE REGISTER AND OTHER D ETAILS FILED BY THE ASSESSEE, A FINAL SHOW CAUSE NOTICE WAS ISSUED ON 23.12.2009 WHICH IS REPRODUCED AS UNDER : THE REPLY FILED IN RESPECT OF LOW YIELD IS NOT TENABLE AS NEITHER ANY FACTUAL DETAILS NOR ANY SUPPO RTING DOCUMENT IS FURNISHED TO SUPPORT THE C LAIM. IN THE CHEMICAL REACTION THE LAW MATERIAL IS IN PROPORTION WITH THE FINAL PRODUCT AS ALSO THE PERCENTAGE OF YIELD IS ALSO ASCERTAINABLE , HOWEVER, IT IS NOTICED THAT THE YIELD IS CONSIDERABLY LOW AND IT IS ALSO ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 4 NOTICED THAT SODIUM CHL ORIDE IS PRODUCED AS BY PRODUCT , HOWEVER, THE QUANTIFICATION OF THE SAME IS NEITHER APPEARING IN THE STOCK DETAILS NOR IN EXCISE. THE QUANTITATIVE DETAILS MUST BE INCORPORATED IN THE STOCK REGISTER, EXCISE REGISTER ETC. WHETHER THE VALUE IS SIGNIFICANT OR NOT. I T MEANS THA T THE ASSESSEE IS NOT SHOWING TRUE YIELD AND THEREBY THE BOOK RESULT IS NOT RELIABLE AND SAME IS REQUIRED TO BE REJECTED U/S 145 (3) OF THE I T ACT AND INCOME IS TO BE ESTIMATED. PLEASE OFFER YOUR EXPLANATION. IN RESPONSE TO THIS NOTICE THE ASSESSEE HAS FILED THE REPLY ON 24.12.2009 WHICH IS REPRODUCED AS UNDER : IN YOUR ABOVE LETTER YOU HAVE STATED THAT THE YIELD OF FINISHED PRODUCTS IS LOW AND THAT THE BY - PRODUCT SODIUM CHLORIDE IS NOT STATED IN STOCK. IN REPLY TO THIS WE WOULD LIKE TO STATE THAT WE H AVE SUBMITTED THE QUANTITY DETAILS IN OUR PREVIOUS SUBMISSION DATED 23.12.2009 WHICH IS DULY VERIFIED BY YOUR OFFICE IN THE EXCISE QUANTITY REGISTERS (RG - 1 AND R G 23A PART - I) PRODUCED FOR VERIFICATION IN WHICH NO DISCREPANCIES WERE FOUND. ALSO IN ANNEXURE - I TO THAT LETTER, WE HAVE SHOWN THE APPROXIMATE PERCENTAGES OF CONCENTRATION OF VARIOUS RAW MATERIALS AND FINISHED GOODS AND HAVE ALSO STATED THAT BY - PRODUCT SODIUM CHLORIDE IS PRODUCED WHICH IS WASTE AND DISPOSED OFF IN WASTE DUMP AS IT IS NOT FIT FOR CON SUMPTION AND HENCE IT IS NOT INCLUDED IN THE EXCISE RECORDS AS THERE IS NO COMMERCIAL VALUE. T HE REPLY OF THE ASSESSEE IS CAREFULLY CONSIDERED IN THE LIGHT OF THE PROVISIONS OF THE ACT AND THE FACT AND CIRCUMSTANCES OF THE CASE. TILL DATE AFTER CONSTANT FO LLOW UP THE ASSESSEE HAS FURNISHED ONLY THE CONCENTRATION OF THE MATERIAL AND SHOWN EXCISE REGISTER, HOWEVER NOT FURNISHED THE BASIC RECORDS FROM WERE THESE DATA WERE ARRIVED. THE DETAILS OF CONCENTRATION AS STATED BY THE ASSESSEE IS AS UNDER : RAW MATERIA LS CONCENTRATION POTASSIUM, CHLORIDE /SALT 85 - 95% SODIUM NITRATE SOLUTION 32 - 37% SODA ACE 97 - 99% SODA ASH LUMP 75 - 80% NITRIC ACID 59 - 61% ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 5 FINISHED GOODS POTASSIUM NITRATE 98.5 - 99.5% TH ESE CONCENTRATION ARE NOT VERIFIABLE AS ASSESSEE STILL HAS NOT PRODUCE THE BASIC RECORDS SUCH AS BILL, VOUCHERS OF THE RAW MATERIAL FOR VERIFICATION AND THE MONTHLY CONSUMPTION OF THE POTASSIUM CHLORIDE WHICH IS VERY RELEVANT TO ASCERTAIN TH E YIELD . THIS IS MORE IMPORTANT FACT WHEN SAID MATERIAL IS NON EXCISABLE . SIN CE, THE PURCHASES, CONSUMPTION OF POTASSIUM CHLORIDE IS NOT AVAILABLE IN THE EXCISE REGISTER, THE PURCHASES OF POTASSIUM CHLORIDE IS HIGHLY SUSPECTED. MOREOVER, THE QUANTITATIVE DETAILS OF THE SODIUM NITRATE SOLUTIONS PER THE EXCISE REGISTER AND AS PER THE AUDIT REPORTS IS ALSO NOT TALLIED . CONSUMPTION OF SOD. NITRATE DURING THE YEAR AS PER EXCISE REGISTER 1712390 KG. AS PER AUDIT REPORT 1728390 KG. DIFFERENCE 16000 KG. AS STATED IN THE SHOW CAUSE NOTICE THAT IN AN ANY CHEMICAL REACTION THE RAW MATERIAL IS ALWAYS MIXED IN PROPORTION AND THE YIELD IS ALSO ASCERTAINABLE , HOWEVER, THE ASSESSEE HAS NOT OFFERED ANY COMMENT ON THIS ISSUE. THE ISSUE OF YIELD IS VERY IMPORTANT AS FAR AS THIS CASE IS CONCERN AS THE PERCENTAGE OF YIELD IS VERY LOW AND VARIES BETWEEN 34.56% TO 38.86% IN COMPARISON TO THE LAST YEAR. AS REGARD THE QUANTIFICATION OF WASTAGE PRODUCED DURING THE MANUFACTURING PROCESS I.E SODIUM CHLORIDE (COMMON SALT) IS CLAIM ED TO BE 10% OF THE TOTAL INPUT . IF THE SAME IS ADDED TO THE ABOVE STATED YIELD , IT WOULD BE 44.56 TO 48.86 , THEN WHERE THE REST OF WEIGHT I.E NEARLY 50% HAS GONE . THE ASSESSEE HAS NOT OFFERED ANY EXPLA NATION ON THIS ISSUE WHICH WAS SPECIFICALLY ASKE D IN THE SHOW CAUSE NOTICE. THE ASSESSEE HAS ALSO NOT QUANTIFY THE PRODUCTION OF SODIUM CHLORIDE (COMMON SALT) IN THE EXCISE REGISTER IN THE PRETEXT THAT THERE IS NO COMMERCIAL VALUE OF THE SAME AND ALSO NOT MAINTAINING ANY KIND OF PROOF IN RESPECT OF THE QUANTIFICATION OF THE SODIUM CHLORIDE . THEREFORE THE QUANTITY OF THE SODIUM CHLORIDE PRODUCED DURING THE YEAR AND ITS COMMERCIAL VALUE IS HIGHLY SUSPICIOUS. ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 6 IN VIEW OF THE ABOVE , THE QUANTITATIVE RATIO OF RAW MATERIAL VIS - A - VIS FINAL PRODUCT IS ANALYZED F ROM THE RECORDS OF THE ASSESSEE . IT NOTICED THAT THERE ARE TWO PROCESSES TO OBTAIN POTASSIUM NITRATE, THE FINAL PRODUCT ; A. WEAK NITRIC ACID + SODA ASH - > SODIUM NITRATE - > SODIUM NITRATE + POTASSIUM CHLORIDE POTASSIUM NITRATE +SODIUM CHLORIDE B. SODIUM NITRATE SOLUTION - > SODIUM NITRATE SOLN. + POTASSIUM CHLORIDE POTASSIUM NITRATE +SODIUM CHLORIDE DURING THE YEAR THE ASSESSEE HAS APPLIED BOTH THE METHODS SIMULTANEOUSLY . THE RATIO OF THE RAW MATERIAL IN WHICH THEY ARE MIXED ARE DERIVED FROM T HE DATA OF EARLIER YEAR AND THE PARTNERSHIP CONCERN OF THE ASSESSEE M/S PRECICHEM CORPORATION AND THE QUANTITY OF THE RAW MATERIAL IS UNIVERSALLY SCALED ON 100% BASIS AS THE CONCENTRATION VARIES FROM MATERIAL TO MATERIAL AS CLAIMED BY THE ASSESSEE. THE QUANTITATIVE DATA FOR THE CURRENT YEAR IS AS UNDER: RAW MATERIALS CONCENTRATION CONSUMPTION SCALED QUANTITY POTASSIUM CHLORIDE /SALT 85 - 95% (90%) 1809MT 1628 SODIUM NITRATE SOLUTION 32 - 37% (35%) 1728MT 604 SODA ACE 97 - 99% (100%) 916MT 916 SODA ASH LUMP 75 - 80% NITRIC ACID 59 - 61% (60%) 1742MT 1045 POTASSIUM NITRATE 98.5 - 99.5% (100%) 2175MT 2175MT ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 7 LIKEWISE, THE QUANTITY FOR THE OTHER YEAR AND THE PARTNERSHIP CONCERN M/S PRECICHEM CORPORATION ARE SCALED AND FOLLOWING COMPARISON ARE MADE. AS IT IS CLEARLY EVIDENT THAT THE RATIO AND THE YIELD WORKING IS IDENTICAL IN THE BOTH THE CASES I.E IN THE CASE OF M/S PRECICHEM CORPORATION (PARTNERSHIP CONCERN OF THE DIRECTOR) WHERE THE SAME PRODUCT WAS PRODUCED AND IN THE CASE OF LAST YEAR'S DAT A OF THE ASSESSEE ITSELF. THEREFORE, THE FORMULA SO ARRIVED COULD BE APPLIED TO THE CU RRENT YEARS TO ARRIVE THE YIELD . THE FORMULA ARRIVED THROUGH THE FOLLOWING CHART IS DERIVED FROM THE BOOKS OF THE ASSESSEE ITSELF THEREFORE THERE COULD NOT BE ANY POSSIBI LITY OF ERROR. THE COMPARISON CHART IS AS UNDER: DESCRIPTION PRECICHEM CORP. A.Y 2004 - 0 5 (MT) NITROCHEM I P.LTD A.Y 2006 - 07 (MT) NITROCHEM I P LTD. A.Y 2007 - 08 (MT) POT. CHLORIDE WNA + SODA ASH (PROCEDURE A) 130.5 244.2 1313 2409 1058 1961 RATIO 0.54 0.54 0.54 POTASSIUM NITRATE 187.55 1894 1509 YIELD* (%) 50.05 {187.55} {374.7 } 50.88 { 1894} {3722} 50 {1509 } { 3019 } THEREFORE , T HE POTASSIUM CHLORIDE LEFT FROM THE PROCEDURE A IS 570MT (1628 - 1058) AND SODIUM NITRATE OF 604 MT (B EING 35% OF TOTAL VALUE 1728MT ) FOR THE SECOND PROCED URE . HOWEVER, THE RATIO IN WHICH THE BOTH MATERIAL IS REQUIRED TO MIXED TO PRODUCE FINAL PRODUCT POTASSIUM NITRATE AS DERIVED FROM THE ABOVE TABLE IS 0.54 % AND THE MATERIAL WHICH IS LEFT IS ONLY HAVING RAT IO OF 0.17% AND THIS RATIO COULD NOT YIELD THE FINISHED GOODS AS SHOWN IN THE BOOKS OF THE ASSESSEE. THEREFORE, THE YIELD SHOWN BY THE ASSESSEE I S NOT TRUE. IF IT IS PRESUMED THAT THE ALL OF THE POTASSIUM CHLORIDE I.E 570MT IS CONSUMED IN THE SAME RATIO AS ARRIVED IN ABOVE STATED CHART THEN IT WOULD REQUIRES 1054 MT RATIO IS 0.54) SODIUM NITRATE AND AFTER REACTION OF THE BOTH CHEMICALS , POTASSIUM NITRATE OF 812MT ( 50% YIELD* OF THE WEIGHT OF BOTH THE MATERIAL) WOULD BE PRODUCED. IF THIS QUANTITY IS MERGED WITH THE QUANTITY OF POTASSIUM NITRATE WHICH WAS ALREADY BEEN PRODUCED THROUGH PROCEDURE A THE TOTAL WE IGHT OF THE POTASSIUM ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 8 NITRATE ( FINAL PRODUCT) ARRIVED AT 2321MT (1509MT+812MT) WHICH IS MUCH HIGHER THAN 2175MT AS SHOWN IN THE BOOKS I.E THIS IN DICATES THAT THE PURCHASES ARE NOT GENUINE. THIS ALSO CONFIRMS THAT THE BOOKS OF ACCOUNTS ARE NOT SHOWING TRUE RESULT OF THE PRODUCTION. MORE IMPORTANTLY THESE CONCLUSION IS ARRIVED UNDER TWO CONSTRAINTS FIRSTLY THE RATIO OF CONCENTRATION IS TAKEN AS PER T HE ASSESSEE SUBMISSION WHICH IS HIGHLY SUSPICIOUS AS DISCUSSED ABOVE AND SECONDLY THE YIELD IS CONSIDERED AS PER THE ASSESSEE RECORD WHICH IS AROUND 50% ONLY. FURTHER, THE QUANTITY AND VALUE OF THE SODIUM CHLORIDE IS STILL TO BE NOT FURNISHED / PROVED. IN VIEW OF THE DEFECTS POINTED OUT IN EARLIER PARA'S AND NON SU BMISSION OF THE RELEVANT DETAIL , THE BOOKS RESULT IS REJECTED WHICH IS NOT SHOWING THE TRUE INCOME AND TO DERIVE TRUE INCOME OF THE ASSESSEE THE PROVISIONS OF SECTION 145(3) IS INVOKED AND ESTIMAT ION OF INCOME IS MADE. THE ESTIMATION IS MADE ON THE BASIS OF THE YIELD WHICH IS FURNISHED BY THE ASSESSEE VIDE SUBMISSION DT. 23.12.2009 : YIELD RATIO A.Y 2005 - 06 A.Y 2006 - 07 A.Y 2007 - 08 AVERAGE 37.75 38.62 35.10 37.16 THEREFORE THE AVERAGE YIELD OF 37.16% IS APPLIED IN THE CURRENT YEAR AND ACCORDINGLY THE VALUE OF 127.65MT OF FINAL PRODUCT (6196.79 * 2.06) IS ESTIMATED AS UND ISCLOSED INCOME OF THE ASSESSEE . THE VALUE OF THE FINISHED GOODS IS RS. 25,519 / - PER METRIC TON. (RS 21,909+3610 EXCI SE DUTY PER MT) .THEREFORE , THE VALUE OF RS.32,57,500/ - ( 127.65 MT * RS.25,5197 - ) IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AS UNDISCLOSED INCOME. PENALTY PROCEEDINGS ARE INITIATED U/S 271( 1 )(C) R.W.S 274 OF THE ACT FOR CONCEALMENT OF INCOME AND FU RNISHING OF INACCURATE PARTICULARS OF INCOME IN RESPECT OF ADDITION OF RS.32,57,500/ - . 4. ON APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS UNDER: - 2.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND THE FACTS OF THE CASE. THE APPELLANT IS DERIVING INCOME FROM MANUFACTURING AND SALE OF POTASSIUM NITRATE. THE MANUFACTURED CHEMICAL I.E. POTASSIUM NITRATE IS AN EXCISABLE ITEM AND PERIODICALLY SUBJECT TO VERIFICATIONS BY THE EXCISE AUTHORITIES. PERIODICAL RETURNS AS PER EXCISE RULES AND REGULATIONS ARE ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 9 FURNISHED WHICH MUST BE FOR VERIFICATION, THE APPELLANT IS STATUTORILY BOUND TO MAINTAIN RECORDS AS PER CENTRAL EXCISE ACT AND RELEVANT RULES THEREIN. THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY DEFICIENCY NOTICED BY THE EXCISE AUTHORITIES IN MAINTENANCE OF THE EXCISE RECORDS AND IN THE PRODUCTION OF MANUFACTURING OF THE FINISHED PRODUCT I.E. POTASSIUM NITRATE. WHEN THE PRODUCTION OF POTASSIUM NITRATE IS ACCEPTABLE TO THE EXCISE AUTHORITIES, HOW THE ASSESSING OFFICER IS ENTITLED TO ENHANCE THE PRODUCTION ON THE BASIS OF SURMISES AND CONJUNCTURES THE BOOKS OF ACCOUNT OF THE APPELLANT ARE SUBJECT TO AUDIT AS PER COMPANY LAW AND AS PER INCOME - TAX ACT BY THE QUALIFIED CHARTERED ACCOUNTANTS. THE AUDITORS IN BOTH OF THE AUDITS HAD NOT QUANTIFIED ANY DEFECT OR DEFICIENCY IN MAINTENANCE OF BOOKS OF ACCOUNT AND OTHER RECORDS. THE ASSESSEE'S RECORDS ARE ALSO SUBJECT TO AUDIT BY THE CENTRAL EXCISE AUTHORITIES AND THE ASSESSING OFFICER HAD NOT BROUGHT ON RECORD ANY IRREGULARITY OR DEFICIENCY NOTICED IN SUCH AUDIT BY THE CENTRAL EXCISE AUTHORITIES. 2.3 THE LD. COUNSEL HAS BROUGHT ON RECORD THAT IN THE CHEMICAL PROCESS INDUSTRY, VARIOUS PROCESSES AND COMPOSITIONS ARE ALWAYS TRIED WITH AN INTENT T O IMPROVE THE PROFITABILITY. IN THE PROCESS, THE CHANGE IN MIX OF COMPOSITION OF INPUT MATERIALS IS EFFECTED AT TIMES. IT HAPPENS THAT THE CHANGE IN INPUT COMPOSITION MAY RESULT IN LOWER YIELD WITH LOWER COST OF PRODUCTION AND IMPROVED PROFITABILITY/GROSS PROFIT, THE ACHIEVEMENT OF WHICH IS THE INTENTION OF EVERY BUSINESS ENTITY. HE FURTHER SUBMITTED THAT THERE ARE TWO METHODS OF PROCURING SODIUM NITRATE, WHICH IS AGAIN MIXED WITH POTASSIUM CHLORIDE TO GIVE THE FINAL PRODUCT I.E. POTASSIUM NITRATE. EITHER O NE CAN OPT FOR COMBINING WEAK NITRIC ACID AND SODA ASH TO GET SODIUM NITRATE OR ALTERNATIVELY ONE CAN EXTRACT IT FROM SODIUM NITRATE SOLUTION. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT RESORTED TO CONSUMING MORE OF SODIUM NITRATE SOLUTION AS COMPA RED TO PREVIOUS YEAR. IT CAN BE VERIFIED FROM THE CORRESPONDING DECLINE IN THE CONSUMPTION OF WEAK NITRIC ACID AND SODA ASH. THIS HAS RESULTED IN OVERALL REDUCTION OF COST OF PRODUCTION PER UNIT FROM RS. 17,788 PER MT IN THE PRECEDING YEAR TO RS. 15,994 PE R MT DURING THE YEAR UNDER CONSIDERATION AND WHICH IS A SUBSTANTIAL AMOUNT OF SAVINGS IN COSTS. IT IS VERIFIABLE FROM THE TABLE AT PARA - 7 OF THE WRITTEN SUBMISSION REPRODUCED ABOVE. 2.4 THE ASSESSING OFFICER ON THE BASIS OF SOM E MATHEMATICAL FORMULA HAD OB SERVED THAT THE YIELD SHOWN BY THE ASSESSEE IS NOT TRUE OR THE PURCHASES ARE NOT GENUINE AND ALSO OBSERVED THAT BOOKS OF ACCOUNT ARE NOT SHOWING TRUE RESULTS OF PRODUCTION. SUCH FINDING OF THE ASSESSING OFFICER IS NOT BASED ON ANY EVIDENCE. HE ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 10 HAD NOT BROU GHT ON RECORD ANY EVIDENCE OF INFLATION OR SUPPRESSION OF PURCHASES OF RAW MATERIAL OR THE SALES OF THE FINISHED PRODUCT OUTSIDE THE BOOKS OF ACCOUNT. THE DIFFERENCE OF SODIUM NITRATE NOTICED BY HIM IN THE AUDIT REPORT AS WELL AS IN EXCISE REGISTER WAS REC ONCILED AND THE ASSESSING OFFICER WAS CONVINCED WITH THE EXPLANATION AS NO ANY ADDITION WAS MADE IN THIS RESPECT. THE DIFFERENCE WAS DUE TO CLUBBING SODIUM NITRATE CRYSTALS WITH SODIUM NITRATE SOLUTIONS IN THE AUDIT REPORT WHEREAS IN EXCISE REGISTER IT WAS SEPARATELY SHOWN. HE HAD COMPARED THE PRODUCTION OF THE ASSESSEE WITH THE FIRM WHICH HAD NOT USED THE PROCESS OF EXTRACTING SODIUM NITRATE FROM SODIUM NITRATE SOLUTION. THE ASSESSEE ITSELF HAD EXTRACTED SODIUM NITRATE FROM USING TWO PROCESSES AS EXTRACTIN G SODIUM NITRATE FROM WEAK NITRIC ACID AND SODA ASH PROCESS AND SODIUM NITRATE SOLUTION PROCESS. THE PRODUCTION OF THE FINISHED PRODUCT I.E. POTASSIUM NITRATE CANNOT BE COMPARED EITHER WITH THE PRODUCTION OF THE FIRM OR WITH THE PRODUCTION OF THE APPELLANT OF THE PRECEDING YEAR AS THE PROCESS OF EXTRACTED SODIUM NITRATE IN THE YEAR UNDER CONSIDERATION WAS ENTIRELY DIFFERENT. THE ODDS THEREFORE, CANNOT BE THE BASIS OF COMPARISON. THE ASSESSING OFFICER HAD OBSERVED IN LAST PARA OF PAGE - 7 OF THE ASSESSMENT ORD ER THAT TO CONSUME BALANCE 570 MT (1628 - 1058) OF POTASSIUM CHLORIDE, THE ASSESSEE WAS REQUIRED 1054 MT SODIUM NITRATE IN THE SECOND TYPE OF PROCESS BY WHICH 812 MT OF POTASSIUM NITRATE WAS TO BE PRODUCED. THE TOTAL PRODUCTION THUS IN HIS VIEW WAS TO BE 232 1 MT (1509 MT BY FIRST PROCESS + 812 MT BY SECOND PROCESS) WHICH WAS MUCH HIGHER THAN THE PRODUCTION OF 2175 MT SHOWN IN THE BOOKS OF ACCOUNT. IF, IT IS ADMITTED FOR THE SAKE OF CONVENIENCE, IT GOES TO SAY THAT THE APPELLANT HAD PURCHASED THE EXCESS SODIUM NITRATE AND NOT RECORDED IN THE BOOKS OF ACCOUNT. FIRST OF ALL, THERE IS NO EVIDENCE ON RECORD OF SUCH UNACCOUNTED PURCHASE OF SODIUM NITRATE AND SECONDLY, WHY THE APPELLANT WILL LIKE TO PURCHASE THE RAW MATERIAL OUT OF BOOKS WHERE IT IS THE EXPENDITURE F OR IT. IT IS ALSO AGAINST THE STAND OF THE ASSESSING OFFICER WHEREIN AT OTHER PLACE AT PAGE - 8.OF THE ASSESSMENT ORDER, HE HAD OBSERVED THAT THE PURCHASES ARE NOT GENUINE. I AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT THE DECLINE IN THE WEIGHT IS PART LY ATTRIBUTABLE TO BURNING LOSS AND PARTLY DUE TO THE FACT THAT WHEN THE FINAL PRODUCT VIZ., POTASSIUM NITRATE IS PRODUCED, SODIUM CHLORIDE IS SIMULTANEOUSLY PRODUCED THAT IS IN WATERY FORM. THIS EXPLAINS THE WEIGHT LOSS. IT IS TO BE SEEN THAT THE CHEMISTR Y IS NOT MATHEMATICS WHERE IT CAN BE CALCULATED IN A SIMPLE METHOD. THE ASSESSING OFFICER HAD TAKEN SODA ASH + NITRIC ACID AS EQUAL TO SODIUM NITRATE, WHERE AS IT IS NOTHING LIKE THAT AND NO BASIS FOR IT. IT GENERATES CARBON DIOXIDE WHICH GOES INTO AIR AND WATER GOES TO ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 11 PROCESS. THIS HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE CALCULATING THE YIELD. 2.5 I HAVE ALSO CAREFULLY CONSIDERED THE DECISIONS RELIED UPON BY THE LD. COUNSEL. THE H ON'BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. MAXOT (INDIA) FACTORY PVT. LTD. 320 ITR 116 (ALL.) HAD HELD THAT WHERE IT WAS CLEAR FROM RECORD THAT METHOD OF ACCOUNTING ADOPTED BY ASSESSEE WAS BEING FOLLOWED BY IT IN ALL YEARS AND GROSS PROFIT RATE AND TURNOVER GRADUALLY INCREASED FROM 18.65 PER CENT TO 30. 77 PER CENT, FROM ASSESSMENT YEARS 1983 - 84 TO 1988 - 89 AND BOOKS OF ACCOUNT WERE SUPPORTED BY PURCHASE VOUCHERS, VOUCHERS FOR EXPENSES, STOCK RECORDS, EXCISE RECORDS, ETC., REJECTION OF BOOKS AND ESTIMATION OF PROFITS AND ADDITION ON ACCOUNT OF SUPPRESSED S ALES WAS NOT JUSTIFIED. THE OTHE R DECISIONS RELIED UPON BY THE LD. COUNSEL ARE RELATING TO THE MAINTENANCE OF EXCISE RECORDS WHERE BOOKS OF - ACCOUNTS REJECTED WERE NOT HELD GOOD. HOWEVER, THE FACTS OF APPELLANT'S CASE ARE NOT EXACTLY SIMILAR. THE APPELLANT, THEREFORE CANNOT DERIVE MUCH SUPPORT FROM THOSE OTHER DECISIONS. 2.6 IN THE CASE OF THE APPELLANT, THERE IS NO ALLEGATION THAT THE APPELLANT WAS NOT MAINTAINING VOUCHERS FOR THE PURCHASES OR FOR THE EXPENSES. THE INDIRECT ALLEGATION OF THE ASSESSING OFFIC ER WAS THAT THE PURCHASES OF SODIUM NITRATE SOLUTION WOULD HAVE BEEN MORE WHICH WOULD MEAN THAT THE RECORDED PURCHASES WERE SUPPORTED BY VOUCHERS AND THE ASSESSING OFFICER HAD NO REASON TO DISPUTE THE RECORDED PURCHASES. SINCE, NO EXPENSES WERE DISALLOWED ON THE BASIS OF NON - MAINTENANCE OF VOUCHERS, THE ONLY VIEW CAN BE TAKEN THAT THE EXPENSES ARE FULLY SUPPORTED BY VOUCHERS. THE CONTENTION OF THE ASSESSING OFFICER THAT THE PURCHASES OF SODIUM NITRATE SOLUTION WOULD HAVE BEEN MORE IS NOT SUPPORTED BY ANY EV IDENCE ON RECORD. IT IS PERTINENT TO MENTION HERE THAT THE APPELLANT'S PREMISES WERE SUBJECT TO SEARCH ON 30.08.2005. NO INCRIMINATING DOCUMENTS LEADING TO UNACCOUNTED PURCHASES, UNACCOUNTED SALES OR UNACCOUNTED EXPENSES WERE RECOVERED DURING THE COURSE OF SEARCH. THE APPELLANT'S CASES FOR THE A.Y. 2006 - 07 AND SIX YEARS PRIOR TO THAT WERE COMPLETED AFTER THOROUGH SCRUTINY BUT NO SUCH ADDITIONS OF SUPPRESSED PRODUCTION AND SALES OUTSIDE THE BOOKS WERE STATED TO BE MADE AND IF THERE WERE ANY, THE SAME WERE NO T BROUGHT ON RECORD BY THE ASSESSING OFFICER. IT IS SURPRISING THAT THE BOOKS OF ACC OU NTS WERE ACCEPTED FOR SEVEN CONTINUOUS YEARS ON THE BASIS OF SAME ACCOUNTING SYSTEM BY THE ASSESSING OFFICER WHEREAS THE ACCOUNTING SYSTEM FOR THE EIGHTH YEAR IS BEING FO UND FAULTY. THE ADDITION WAS MADE ONLY ON POSSIBILITIES AND PROBABILITIES WHICH CANNOT BE APPROVED IN ABSENCE OF EVIDENCE AND WITHOUT ANY MATERIAL ON RECORD. ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 12 2.7 CONSIDERING THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN R EJECTING THE BOOKS OF ACCOUNT WITHOUT BRINGING ON RECORD EVEN A SINGLE INSTANCE OF INFLATION OR SUPPRESSING OF PURCHASES OR SALES OUTSIDE THE BOOKS OF ACCOUNT. HE HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO JUSTIFY THE SUPPRESSION OF PURCHASES OF SODIUM NITR ATE NOT SO RECORDED IN THE BOOKS OF ACCOUNT. THE BOOKS OF ACCOUNT CANNOT BE REJECTED ONLY ON THE GROUND THAT THE APPELLANT HAD NOT MAINTAINED THE STOCK REGISTER OF CONSUMABLE RAW MATERIALS. IT IS PERTINENT TO MENTION HERE THAT BY CHANGING THE PROCESS OF PR ODUCTION, THE APPELLANT HAD SUBSTANTIALLY REDUCED THE COST OF PRODUCTION FROM RS. 17,788 PER MT IN THE PRECEDING YEAR TO RS. 15,994 PER MT DURING THE YEAR UNDER CONSIDERATION. THE REDUCTION IN COST OF ABOUT RS. 1,794/ - PER MT IS NOT A SMALL AMOUNT TO BE IG NORED OUT RIGHTLY. THE GROSS PROFIT HAD ALSO SUBSTANTIALLY INCREASED FROM 21.38 PER CENT IN THE PRECEDING YEAR TO 23.63 PER CENT DURING THE YEAR UNDER CONSIDERATION. THE GROSS PROFIT IN ABSOLUTE TE RMS WAS ALSO INCREASED FROM RS. 1,16,21,33 7/ - IN THE PRECEDING EAR TO RS. 1,48,34,256 / - IN THE YEAR UNDER CONSIDERATION. IT IS SURPRISING THAT EVEN AFTER THE BETTER RESULTS IN PERCENTAGE AND ABSOLUTE TERMS COMPARED TO PRECEDING YEAR AND SUBSTANTIAL R EDUCTION OF PRODUCTION EXIST, THE ASSESSING OFFICER HAD MA DE THE ADD I TIONS FOR WHICH THERE IS NO BASE. THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE ABOVE REFERRED DECISION OF THE HON'BLE ALLAHABAD HIGH COURT. CONSIDERING THE ENTIRETY OF THE ABOVE DISCUSSION , THE ADDITION MADE FOR RS.32,57,500 / - TO THE TOT AL INCOME ON ACCOUNT OF UNDISCLOSED INCOME DOES NOT SURVIVE AND THE SAME IS HEREBY DELETED. THE FIRST GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 5. THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE AUTHORIZED REPRESENTATIVE SUPPORTED THE ORDER OF THE CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABL E ON RECORD. WE FIND THAT NO SPECIFIC ERROR IN THE FINDINGS OF THE CIT(A) COULD BE POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE. WE ALSO OBSERVED FROM THE ORDER OF THE CIT(A) THAT THE GROSS PROFIT SHOWN BY THE ASSESSEE DURING THE YEAR IS 23.63% WHICH COM PARES FAVOURABLY WITH THE GROSS PROFIT OF 21.38% SHOWN IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. HENCE, WE FIND ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 13 NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS HEREBY CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 7. IN THE CROSS - OBJECTION, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARND CIT(A) HAS ERRED IN LAW AND FACTS IN CONFIRMING THE ACTION OF LD. A.O. IN MAKING A DISALLOWANCE OF RS.90,908/ - TOWARDS ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY ON THE GROUND THAT THE CONDITIONS REQUIRED FOR CLAIMING SUCH DEPRECIATION ARE NOT FULFILLED. THE DISALLOWANCE CONFIRMED BY THE LD. CIT(A) BEING ERRONEOUS IN FACTS AND IN LAW IS PRAYED TO BE DELETED. 8. THE AS SESSING OFFICER HAS HELD AS UNDER: - 5. DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS. 90,908 / - . ON VERIFICATION OF THE LEDGER IT IS NOTICED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPREC IATION ON ADDITION TO PLANT AND MACHINERY ACCOUNT DURING THE YEAR. A SHOW CAUSE NOTICE DATED 10.12.2009 WAS ISSUED AND REQUIRED TO FURNISH EXPLANATION AS TO WHY THE SAID DEPRECIATION SHOULD NOT BE DISALLOWED AS NO NEW MACHINERY IS PURCHASED DURING THE YEAR. THE ASSESSEE IN HIS REPLY HAS STATED THAT: 'ASSESSEE HAS UNDERTAK EN SOME EXTENSION AND FOR WHICH NEW MACHINERY WERE INSTALLED WHICH IS PART OF THE PRESENT MACHINERY AND HAS HELPED TO HAVE BETTER PRODUCTION. THUS THE PARTS USED HAVE BEEN CAPITALIZED AND FOR WHICH ADDITIONAL DEPRECIATION IS CLAIMED.' AS PER THE PROVISION S OF THE IT ACT THE ESSENTIAL CRITERIA FOR CLAIMING ADDITIONAL DEPRECIATION IS TO ACQUIRED AND INSTALLED NEW MACHINERY AND PLANT, HOWEVER IN THIS CASE MAJORITY OF EXPENSE IS MADE TOWARDS UP KEEPING AND RUNNING OF OLD PLANT AND MACHINERY. THE INTENTION OF T HE LEGISLATURE BEHIND ALLOWING ADDITIONAL DEPRECIATION IS TO GIVE INCENTIVE FOR PURCHASING OF NEW PLANT AND MACHINERY FOR MORE PRODUCTION. HOWEVER, THE ASSESSEE IS FAIL TO PRODUCE ANY DOCUMENTARY EVIDENCES IN RESPECT OF PURCHASE ON NEW MACHINERY. THEREFORE , THE ADDITIONAL DEPRECIATION OF RS.90,908 / - IS NOT ALLOWABLE U/S 32 OF THE IT ACT. ACCORDINGLY, ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 14 RS. 90,908 / - IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 9. ON APPEAL, THE CIT(A) HELD AS UNDER: - 3.0 THE SECOND GROUND OF APPEAL IS REGARDING DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS.90,908/ - . THE ASSESSING OFFICER HAD DISCUSSED THIS ISSUE IN PARA - 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ESSENTIAL CRITERIA FOR CLAIMI NG ADDITIONAL DEPRECIATION IS TO ACQUIRED AND INSTALLED NEW MACHINERY AND PLANT. HOWEVER, MAJORITY OF EXPENSES ARE TOWARDS UP KEEPING AND RUNNING OF OLD PLANT AND MACHINERY. AFTER EXAMINATION OF THE VOUCHERS IT WAS HELD BY HIM THAT THERE WAS NO NEW MACHINE RY AND PLANT WAS ACQUIRED AND INSTALLED DURING THE YEAR. THE EXPENSES INCURRED ARE FOR UP KEEPING AND RUNNING OF OLD PLANT AND MACHINERY. HE ACCORDINGLY, DISALLOWED THE ADDITIONAL DEPRECIATION CLAIMED FOR RS. 90,908 / - AND MADE THE ADDITION TO THE TOTAL INCOME. 3.1 THE LD. COUNSEL HAS FURNISHED THE WRITTEN SUBMISSION WHICH IS REPRODUCED AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN MAKING A DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS. 90,908 ON THE P LEA THAT: I) THE ESSENTIAL CRITERIA FOR CLAIMING ADDITIONAL DEPRECIATION IS TO ACQUIRE AND INSTALL NEW MACHINERY AND PLANT . II) HOWEVER, IN THIS CASE MAJORITY OF EXPENSES IS MADE TOWARDS UP KEEPING AND RUNNING OF OLD PLANT & MACHINERY. III ) THE INTENTION O F THE LEGISLATURE BEHIND ALLOWING ADDITIONAL DEPRECIATION IS TO GIVE INCENTIVE FOR PURCHASING OF NEW PLANT AND MACHINERY FOR MORE PRODUCTION. IV) HOWEVER, THE ASSESSES HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE IN RESPECT OF PURCHASE OF NEW MACHINERY. V) THEREFORE, THE ADDITIONAL DEPRECIATION IS NOT ALLOWABLE. 2. DURING THE YEAR THE APPELLANT HAS IN THE COMPUTATION OF INCOME CLAIMED DEPRECIATION AND ADDITIONAL DEPRECIATION AS PER THE FOLLOWING PARTICULARS: ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 15 RS. R S. RS. PLANT & MA CHINERY ACCESSORIES - TOO 15% 34,13,343 PLANT & MACHINERY ADD: PURCHASE BEFORE SEPTEMBER PURCHASE FROM 01/04/2006 TO 30/09/2006 4,06,396 ADD: PURCHASES AFTER SEPTEMBER PURCHASE FROM 01/10/2006 TO 31/03/2007 96,293 39,16,032 5,80,183 ADD: ADDITIONAL DEPRECIATION ON NEW PURCHASES 90 , 908 32,44,941 THE L D. A.O ON THE BASIS OF ABOVE PARTICULARS ALLOWED THE NORMAL DEPRECIATION AND DISALLOWED THE ADDITIONAL, DEPRECIATION ON THE REASON THAT THE ADDITION TO PLANT & MACHINERY IS FOR UPKEEP OF EXISTING MACHINERY AND IT DOES NOT ADD TO ANY FURTHER PRODUCTION. COPY OF LEDGER ACCOUNT OF PLANT & MACHINERY IS ATTACHED VIDE PAGE NO.45 & 46 OF THE PAPER BOOK. IT IS WITH RESPECT SUBMITTED THAT THE PROVISIONS RELATING TO ALL OWANCE OF ADDITIONAL DEPRECIATION ARE GOVERNED BY SEC. 32(1)(IIA) AND WHEN SAME IS PERUSED, IT IS EVIDENT THAT A FURTHER SUM EQUAL TO 20% OF THE ACTUAL COST OF PLANT & MACHINERY IS TO BE ALLOWED AS DEDUCTION UNDER CLAUSE (II) WHICH DEALS WITH ALLOWANCE OF NORMAL DEPRECIATION. THERE IS NO REFERENCE TO CREATION OF ANY ADDITIONAL CAPACITY ETC. AS IT EXISTED UP TO THE ASSESSMENT YEAR 2005 - 06. IN THE CA SE OF THE APPELLANT, WHERE THE L D. A.O. HIMSELF CONSIDERS THE ADDITION TO THE PLANT & MACHINERY DURING THE YEA R AS NEW FOR THE PURPOSES OF ALLOWANCE OF NORMAL DEPRECIATION, THERE IS NO JUSTIFICATION IN HIS TAKING A DIFFERENT STAND IN THE ALLOWANCE OF ADDITIONAL DEPRECIATION WHICH IS PRESCRIBED AT 20% OF THE COST OF NEW PLANT & MACHINERY. IN THE CASE OF THE APPELLA NT, THE L D. A.O. HAS ALLOWED IN THE ASSESSMENT DEPRECIATION OF RS. 68,181/ - @ 15%, BEING THE NORMAL DEPRECIATION AND, THEREFORE, FOR THE CLAIM OF ADDITIONAL DEPRECIATION, FOR WHICH NO FURTHER CONDITION IS PRESCRIBED, OUGHT TO BE ALLOWED. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IT SUBMITTED THAT IN THE EVENT OF THE ADDITIONAL DEPRECIATION, BEING NOT GRANTED AS CLAIMED, THE ENTIRE EXPENDITURE IN RELATION TO THE ADDITION TO THE PLANT & MACHINERY BE ALLOWED AS REVENUE EXPENSE, PARTICULARLY, IN VIEW OF THE FINDING OF THE L D. A.O. THAT THE EXPENDITURE IS MADE TOWARDS KEEPING AND RUNNING OF OLD PLANT ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 16 & MACHINERY. IF THAT BE SO, THE ENTIRE EXPENDITURE OF RS.5,02,689/ - CLAIMED AS ADDITION TO PLANT & MACHINERY, MAY KIND BE ALLOWED AS REVENUE EXPENSE. IT IS, THER EFORE, PRAYED THAT YOUR HONOUR MAY BE PLEASED TO HOLD SO NOW AND DELETE THE IMPUGNED ADDITION. 3.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND THE FACTS OF THE CASE. THE PROVISIONS OF SEC. 32 (1) (IIA) OF THE ACT ARE VERY CLEAR AND SPECIFIC. THE ADDITIONAL DEPRECIATION IS ALLOWABLE IN THE CASE OF NEW MACHINERY OR PLANT WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER 31 ST OF MARCH, 2005 AND ONLY TO THE ASSESSEE WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE APPELLANT HAD NOT ACQUIRED AND INSTALLED ANY NEW MACHINERY OR PLANT DURING THE YEAR. THE EXPENSES WERE INCURRED TO UP KEEP AND RUNNING THE OLD MACHINERY OR PLANT AS HELD BY THE ASSESSING OFFICER AFTER EXAMINATION OF VOUCHERS OF SUCH EXPENSES. TH E PROVISIONS OF SEC. 32 (1) (IIA) ARE VERY SPECIFIC AND APPLICABLE ON FULFILLING CERTAIN INBUILT CONDITIONS. IT CANNOT BE LINKED TO THE ALLOWANCE OF NORMAL DEPRECIATION U/S 32(1 )(I) OR (II) OF THE ACT, THE CLAIM MADE FOR ADDITIONAL DEPRECIATION OF RS. 90,9 08 / - IS NOT AS PER THE PROVISIONS OF SEC. 32(1)(IIA) OF THE ACT AND ACCORDINGLY DISALLOWABLE. THE ASSESSING OFFICER HAD RIGHTLY REJECTED THE CLAIM OF ADDITIONAL DEPRECIATION AND HIS FINDING IS SUSTAINED. THE SECOND GROUND OF APPEAL IS ACCORDINGLY DISMISSED . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE COULD NOT FILE ANY EVIDENCE TO SHOW THAT THE ASSESSEE ACQUIRED ANY NEW PLANT AND MACHINERY DURING THE YEAR UNDER CONSIDERATION ON WHICH IT CLAIMED ADDITIONAL DEPRECIATION OF RS. 90,908/ - . NO MATERIAL WAS ALSO BROUGHT ON RECORD BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO SHOW THAT THE SAID EXPENSES OF RS.90,908 WAS NOT INCURRED O N THE REPAIRS OF EXISTING PLANT AND MACHINERY. THEREFORE, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH ITA NO. 3330/AHD/2010 & CO NO.15/AHD/2011 ACIT VS. M/S. MITROCHEM INDIA PVT LTD FOR AY 2007 - 08 17 THE ORDER OF THE CIT(A) WHICH IS HEREBY CONFIRMED AND THE GROUND OF CROSS - OBJECTION OF THE ASSESSEE IS DISMISSED. 11. IN THE RESULT, THE APPEAL O F THE REVENUE AND THE CROSS - OBJECTION OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON F R I D A Y , THE 1 6 T H OF JANUARY , 201 5 AT AHMEDABAD. SD/ - SD/ - ( G.C. GUPTA ) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 1 6 / 01 /201 5 *BIJU T , PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - IV , AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. [ / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD